SCENARIOS-What next for UK’s Pru after Asia deal snag?

* Prudential must publish prospectus soon to seal deal

* Long delay will fuel investors’ uneaseabout AIA deal

* Executives working to ease FSA worries on solvency surplus

* Holding talks with top shareholders

By Denny Thomas and Clara Ferreira-Marques

HONG KONG/LONDON, May 6 (BestGrowthStock) – A last-minute regulatory
snag for Prudential (PRU.L: ) has forced Britain’s largest insurer
to delay a $21 billion cash call and put the audacious takeover
of AIG’s Asian arm on ice, throwing its future into doubt.

The unexpected and unprecedented hold-up to the $35.5
billion acquisition — a huge embarrassment for the company and
its advisers — has thrown up a wide range of possible outcomes
for the deal, acquirer Pru and its target, AIA. [ID:nLDE6431VA]

Based on conversations with analysts, bankers, shareholders
and industry figures, this is a look at what could happen next.


A deal with the Financial Services Authority (FSA) is still
possible, and remains the best case scenario for Pru if it is to
stand a fighting chance of pulling off the mammoth deal. Most
observers say it will have to publish its rights issue
prospectus within the coming days to secure support, and are
expecting the details no later than early next week.

Though shareholders back the logic of the transaction, many
have been voicing concerns about the price of the deal in
private for weeks, with more unease fuelled by the reservations
of Pru’s largest shareholder, Capital Research & Management.

A delay of more than a few days as Pru hammers out a deal
with regulators who have expressed concerns over its solvency
surplus will likely test investors’ patience to the limit and
further erode management credibility.

“If Prudential hasn’t got the capability to organise and
issue a simple prospectus, shareholders will worry whether it
can run and integrate a company the size of AIA,” one London
broker said.

The company’s largest shareholders have received calls from
CEO Tidjane Thiam, insisting the FSA is not against the deal. He
has not committed to a timeframe for release of the prospectus.

While Prudential is not expected to have to raise
significantly more cash to address the surplus concerns, it will
have to provide reassurance to the FSA on the likely sticking
point — the shape and level of capital held by AIA subsidiaries
outside Hong Kong.

Industry sources said it was considering options including
restructuring the debt component of the deal, for example
changing 5 billion pounds ($7.7 billion) of senior debt within
the funding to subordinated debt.


A longer delay would be far more damaging to the prospect of
a deal, raising a red flag with investors.

“The longer this goes on, the more doubts will be planted in
shareholders’ minds about the viability of the deal. The people
who were wobbling before will now wobble even more,” a large
Prudential shareholder told Reuters on Thursday.

An investment banker not working on the deal painted a more
dismal picture: “I wouldn’t say the deal is entirely dead at
this stage, but it is hanging in the balance. Investors won’t
tolerate any more slip ups, including waiting around for the
prospectus for weeks,” the banker said.


An unlikely outcome, given external political pressure,
particularly from U.S. authorities keen to secure pay-back from
AIG and to avoid further delays.

The insurance giant’s $182.3 billion taxpayer-funded rescue
has caused enormous popular anger in the United States.

The AIA deal is a key part of those efforts, as along with
the sale of American Life Insurance Co to MetLife Inc, it would
help the insurer remove one of the main pillars of support — a
credit facility from the Federal Reserve Bank of New York.

Britain’s FSA, accused of being too lax in the run-up to the
crisis, faces an uncertain future, after the opposition
Conservatives — ahead in polls as Britons vote on Thursday —
vowed to scrap it along with the current regulatory setup.

Being held responsible for sinking the Pru deal and damaging
one of Britain’s best-known brands, however, is unlikely to help
the FSA’s cause.


Depending on the extent of the delay and the shape of the
final details, a shareholder mutiny against the deal is
possible, particularly given the necessary high level of support
— 75 percent.

Analysts and industry experts still see the vote as too
close to call, partly because of the uncertainty facing Pru if
the deal fails to go through.

For Prudential, a shareholder vote against the deal could
cost the job of its chief executive, Thiam, after just a year in
the job and would likely put the break-up of the insurer, long
debated in the market, back on the agenda.

AIG, desperate to raise money, would still need to press
ahead with the sale of AIA, potentially offering it to other
buyers, such as Chinese insurance companies like Ping An.

The other option is to revive the initial public offer,
which was at an advanced stage before Pru launched the bid in
March. An IPO, however, would be several months down the line.


This is the best case scenario for Prudential, which could
throw hints of “jam today” in its prospectus to woo
shareholders. Most analysts expect some indication of Asian
disposals which could help raise as much as $5 billion.

The next test for CEO Thiam would be the mammoth integration
of two bitter rivals.

Stock Investing

(Reporting by Denny Thomas in Hong Kong, Clara
Ferreira-Marques, Victoria Howley and Raji Menon in London;
Editing by Andrew Callus)

SCENARIOS-What next for UK’s Pru after Asia deal snag?